"E. Schreiber" <[EMAIL PROTECTED]> wrote: From: "E. Schreiber" <[EMAIL
PROTECTED]>
To: <Undisclosed-Recipient:;>
Subject: 7 countries consider abandoning U.S. Dollar
Date: Mon, 12 Nov 2007 00:12:21 +0700
INFORMATION CLEARING HOUSE, Thursday, 08 November 2007
7 COUNTRIES CONSIDER ABANDONING U.S. DOLLAR
By Jessica Hupp
http://www.informationclearinghouse.info/article18680.htm
It's no secret that the dollar is on a downward spiral. Its value is
dropping, and the Fed isn't doing a whole lot to change that. As a result, a
number of countries are considering a shift away from the dollar to preserve
their assets. These are seven of the countries currently considering a move
from the dollar, and how they'll have an effect on its value and the US
economy.
1. Saudi Arabia: The Telegraph
<http://www.telegraph.co.uk/money/main.jhtml;jsessionid=BYRFMD0QYRQTVQFIQMFSFF4AVCBQ0IV0?xml=/money/2007/09/19/bcnsaudi119.xml
> reports that for the
first time, Saudi Arabia has refused to cut interest rates along with the US
Federal Reserve. This is seen as a signal that a break from the dollar
currency peg is imminent. The kingdom is taking "appropriate measures" to
protect itself from letting the dollar cause problems for their own economy.
They're concerned about the threat of inflation and don't want to deal with
"recessionary conditions" in the US. Hans Redeker of BNP Paribas
believes this creates a
"very dangerous situation for the dollar," as Saudi Arabia alone has
management of $800 billion. Experts fear that a break from the dollar in
Saudi Arabia could set off a "stampede" from the dollar in the Middle East,
a region that manages $3,500 billion.
2. South Korea: In 2005, Korea
<http://www.washingtonpost.com/wp-dyn/articles/A45703-2005Feb22.html>
announced its intention to shift its investments to currencies of countries
other than the US. Although they're simply making plans to diversify for the
future, that doesn't mean a large dollar drop isn't in the works. There are
whispers that the Bank of Korea is planning on selling $1 billion US bonds
in the near future, after a $100 million sale this past August.
3. China: After already dropping the dollar peg
(http://news.bbc.co.uk/2/hi/business/4703477.stm) in 2005, China
has more trouble up its sleeve. Currently, China is threatening a "nuclear
option" of huge dollar liquidation in response to possible trade sanctions
intended to force a yuan revaluation. Although China "doesn't want any
undesirable phenomenon in the global financial order," their large sum of US
dollars does serve as a "bargaining chip." As we've noted in the
past, China has the power to take the wind out of the dollar.
4. Venezuela: Venezuela holds little loyalty to the dollar. In fact, they've
shown overt disapproval, choosing to establish barter deals for oil.
These barter deals, established under Hugo Chavez, allow Venezuela to trade
oil with 12 Latin American countries and Cuba without using the dollar,
shorting the US its usual subsidy. Chavez is not shy about this decision,
and has publicly encouraged others to adopt similar arrangements. In 2000,
Chavez to OPEC that they "take advantage of high-tech electronic barter and
bi-lateral
exchanges of its oil with its developing country customers," or in other
words, stop using the dollar, or even the euro, for oil transactions. In
September, Chavez
(http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGBuWpZJ9cPI)
instructed Venezuela's state oil company Petroleos de Venezuela
SA to change its dollar investments to euros and other currencies in order
to mitigate risk.
5. Sudan: Sudan is, once again, planning to convert its
dollar holdings to the euro and other currencies. Additionally, they've
recommended to commercial banks, government departments, and private
businesses to do the same. In 1997, the Central Bank of Sudan made a similar
recommendation in reaction to US sactions from former President Clinton, but
the implementation failed. This time around, 31 Sudanese companies have
become subject to sanctions, preventing them from doing trade or financial
transactions with the US. Officially, the sanctions
(http://www.sudantribune.com/spip.php?article23958) are reported to have little
effect, but there are indications that the economy is suffering due to these
restrictions. A decision to move Sudan away from the dollar is intended to
allow the country to work around these sanctions as well as any implemented
in the future. However, a Khartoum committee recently concluded that proposals
for a reduced dependence on the dollar are "not feasible." Regardless, it is
clear that Sudan's intent is to attempt a break from the dollar in the
future.
6. Iran: Iran is perhaps the most likely candidate for an imminent
abandonment of the dollar. Recently, Iran
(http://www.bloomberg.com/apps/news?pid=20601086&refer=latin_america&sid=aGB)
uWpZJ9cPI> requested that its shipments to Japan be traded for yen instead
of dollars. Further, Iran has plans in the works to create an open commodity
exchange called
the Iran Oil Bourse. This exchange would make it possible to trade oil and
gas in non-dollar currencies, the euro in particular. Athough the oil bourse
has missed at least three of its announced opening dates, it serves to make
clear Iran's intentions for the dollar. As of October 2007, Iran receives
non-dollar currencies for 85% of its oil exports, and has plans to move the
remaining 15% to currencies like the United Arab Emirates dirham.
7. Russia: Iran is not alone in its desire to establish an alternative to
trading oil and other commodities in dollars. In 2006, Russian President
Vladmir Putin expressed interest in establishing a Russian stock exchange which
would
allow "oil, gas, and other goods to be paid for in Roubles." Russia's
intentions are no secret-in the past, they've made it clear that they're
wary of holding too many dollar reserves. In 2004, Russian central bank
First Deputy Chairmain Alexei Ulyukayev
(http://www.businessweek.com/magazine/content/04_49/b3911032_mz011.htm)
remarked, "Most of our reserves are in dollars, and that's a cause for
concern." He went on to explain that, after considering the dollar's rate
against the euro, Russia is "discussing the possibility of changing the
reserve structure." Then in 2005, Russia put an end to its dollar peg,
opting instead to move towards a euro alignment. They've
discussed pricing oil in euros, a move that could provide a large
shift away from the dollar and towards the euro, as Russia is the world's
second-largest oil exporter.
What does this all mean?
Countries are growing weary of losing money on the falling dollar. Many of
them want to protect their financial interests, and a number of them want to
end the US oversight that comes with using the dollar. Although it's not
clear how many of these countries will actually follow through on an
abandonment of the dollar, it is clear that its status as a world currency
is in trouble.
Obviously, an abandonment of the dollar is bad news for the currency. Simply
put, as demand lessens, its value drops. Additionally, the revenue generated
from the use of the dollar will be sorely missed if it's lost. The dollar's
status as a cheaply-produced US export is a vital part of our economy.
Losing this status could rock the financial lives of both Americans and the
worldwide economy.
-----------------------------------------------------
Bloomberg, 08 November, 2007
Dollar Slumps to Record on China's Plans to Diversify Reserves
By Agnes Lovasz and Stanley White
http://www.countercurrents.org/white081107.htm
Nov. 7 (Bloomberg) -- The dollar fell the most since September against the
currencies of its six biggest trading partners after Chinese officials
signaled plans to diversify the nation's $1.43 trillion of foreign exchange
reserves.
The dollar fell against all 16 of the most-active currencies, declining to
the weakest versus the Canadian dollar since the end of a fixed exchange
rate in 1950, a 26-year low against the pound and a 23-year low versus the
Australian dollar. The New York Board of Trade's dollar index dropped to
75.21 today, the lowest since the gauge started in March 1973.
``Further weakening of the dollar is very likely,'' said Teis Knuthsen, the
Copenhagen-based head of foreign-exchange, fixed-income and derivative
research at Danske Bank A/S, the Nordic region's second-biggest lender.
China may ``diversify out of dollar holdings.''
The U.S. currency slumped to $1.4704 per euro, the lowest since the
13-nation currency debuted in January 1999, before trading at $1.4671 as of
7:15 a.m. in New York, from $1.4557 late yesterday. The dollar dropped the
most in two months against the yen, trading as low as 112.87 yen. The euro
fell against the yen to 165.84, from 166.99 yesterday.
The U.S. dollar index may be due for a reversal, according to a technical
indicator. Its 14-day relative-strength measure fell to 21.38 today, below
the 30 mark, which may signal the currency's decline has bottomed out.
In technical analysis, investors and analysts study charts of trading
patterns and prices to forecast changes in a security, commodity, currency
or index.
Chinese Comments
"We will favor stronger currencies over weaker ones, and will readjust
accordingly,'' Cheng Siwei, vice chairman of China's National People's
Congress, told a conference in Beijing. The dollar is ``losing its status as
the world currency,'' Xu Jian, a central bank vice director, said at the
same meeting.
The dollar also fell to an all-time low against the synthetic euro, a
theoretical value that estimates where the currency would have traded before
its inception. The prior record was $1.4557 set in 1992.
The U.S. currency may weaken to between $1.48 and $1.50 against the euro by
year-end, Knuthsen said.
Chinese investors have reduced their holdings of U.S. Treasuries by 5
percent to $400 billion in the five months to August. China Investment
Corp., which manages the nation's $200 billion sovereign wealth fund, said
last month it may get more of the nation's reserves to invest to improve
returns.
Treasuries Rise
U.S. 10-year Treasury notes rose today as mounting credit-market losses and
declines in stocks pushed investors to the safety of government debt.
``The world's currency structure has changed,'' Xu said at the conference in
Beijing. Cheng, speaking to reporters after his speech, said his comments
don't mean China will buy more euros. The National People's Congress,
China's legislature, isn't involved in setting currency policy.
``Cheng has a history of speaking out on a range of financial market and
economic developments, and his comments are not always accurate,'' said
Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.
Cheng's remarks on Jan. 30 that China's stock rally was a ``bubble'' caused
the benchmark index to fall the most in almost two years the following day.
The Shanghai and Shenzhen 300 Index, then over 2,500 points, has since
climbed above 5,300.
The euro's gains may be limited by speculation European economic growth may
slow, reducing the need for higher interest rates.
ECB Rates
The European Central Bank will keep its key rate at 4 percent tomorrow,
according to all 61 economists surveyed by Bloomberg News. Data yesterday
showed manufacturing orders in Germany fell more than expected in September.
``The euro is clearly overvalued against the dollar,'' Emanuele Ravano,
co-head of European strategy for Pacific Investment Management Co., which
manages the world's biggest bond fund, said late yesterday in Brussels. The
ECB ``over the course of 2008 will totally change its tune'' by cutting in
the second half.
Europe's single currency will trade at $1.43 versus the dollar by year-end,
according to the median forecast of 42 analysts and brokerages surveyed by
Bloomberg News.
The dollar's decline helped drive the price of crude oil to a record $98 a
barrel and gold to a 27-year high, encouraging investors to buy assets in
commodity-producing nations.
Commodity Currencies
Commodity currencies led the gains today. The Canadian dollar advanced to
$1.1040. The Australian dollar gained to 93.98 U.S. cents, the highest since
April 1984, from 92.87 U.S. cents. The rand rose to as high as 6.4294 per
dollar, the highest since May 2006. The pound rose to $2.1052, the highest
since May 1981.
The dollar's 9.8 percent drop against the euro this year boosted the
competitiveness of U.S. exports, helping shrink the nation's trade deficit
to $57.6 billion in August, the smallest since January.
French President Nicolas Sarkozy yesterday raised concern about the euro's
strength during a visit to the U.S., saying ``you don't need too weak a
dollar'' to spur growth in the world's largest economy.
``This is an asset story and shows sentiment for the dollar continues to be
quite negative,'' said David Forrester, currency economist at Barclays
Capital in Singapore.
The Australian dollar gained after the country's central bank raised its
benchmark borrowing cost to 6.75 percent today. Governor Glenn Stevens,
announcing the quarter-point rate increase, said inflation will exceed the
bank's target.
Pressure on Fed
The dollar fell against the Norwegian krone as traders added to bets
Norway's central bank will increase its 5 percent deposit rate. It declined
to 5.2835 kroner, from 5.3474. The dollar also dropped as losses from
subprime-mortgage defaults added to pressure on the Federal Reserve to lower
its target for the overnight lending rate between banks to 4.25 percent next
month.
``The interest-rate outlook is dragging down the dollar against major
currencies such as the euro and the Australian dollar,'' said Seiichiro
Muta, director of foreign exchange in Tokyo at UBS AG, the world's
second-largest currency trader. ``I cannot see the bottom of the dollar
depreciation yet.''
Interest-rate futures traded on the Chicago Board of Trade show a 62 percent
chance of a quarter-percentage point Fed rate cut on Dec. 11, compared with
6 percent a month ago. Citigroup Inc. may write down an additional $2.7
billion worth of subprime- related assets, CreditSights Inc. said yesterday.
New Zealand's dollar rose to 78.35 U.S. cents from 78 U.S. cents on
speculation a report tomorrow will show the unemployment rate remained at a
record low, boosting the chance of another increase to the country's record
8.25 percent benchmark interest rate.
To contact the reporters on this story: Agnes Lovasz in London at
<[EMAIL PROTECTED]">mailto:[EMAIL PROTECTED]>[EMAIL PROTECTED] ; Stanley White
in Tokyo
at <[EMAIL PROTECTED]">mailto:[EMAIL PROTECTED]>[EMAIL PROTECTED]
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